The argument that I’ve been hearing for ages…..
_*Gold prices are decided by Demand & Supply in India*_
I DON’T THINK SO & probably the worst perception in people’s mind which all media & advisors keep driving.
Let me clarify this to all –
Indian Gold prices are dependent on 3 critical factors…..
_*Global Gold Price*_
_*USD Vs INR Exchange Rate*_
_*Govt Import Duty Rate on Gold Imports*_
India consumes about 800 to 900 tonnes of Gold every year, of which about 750 tonnes is imported.
_That’s about 83.33% (on the lower end) to 93.75% (on the higher end)_ of Gold Imports
So, how on earth is the Indian demand impacting the gold price in India??? (Import quantity is based on demand, though, but probably controlled to. large extent)…we have seen earlier that the govt imposed higher duties just to safe guard the INR against a large outflow of precious foreign currency on Gold Imports.
Yes, Indian gold prices will be impacted to a certain extent because of Indian demand in such a case that……..
_*Gold imports have reduced substantially or vapoursied for a prolonged time period & the majority of Indians have decided to exchange their currency for Gold*_
And let me close this out by a data point….
A Troy ounce of gold peaked to about $ 1920 in 2012 & Indian gold price then peaked about ₹ 32,000 for 10 gms 24 carat (if I’m not wrong)
Today….
A Troy ounce of gold is still about $ 1704…..about 11.25% lesser than its 2012 peak
And in India, it’s about ₹ 45,511 for 10 gms of 24 carat (approx)
_Why did this difference come in?_
Only one factor
_INR Depreciates against USD_
And I’ll prove it with data
In 2012…USD to INR was about 51.16 (yr end closure)
In 2020…USD to INR is about 75.5 (today)
_*CAGR of INR depreciation is 4.98%*_
Now….
In 2012… INR price of Gold was about 32,000 (yr end was about 31k odd)
In 2020…. INR price of Gold is ₹ 45,511 (today)
_*CAGR of Gold price in India is about 4.5%*_
??
Some people say…..what matters to me is the Indian price only and my growth in India
It’s like saying …what matters to me is a 8% Fd rate in India when the $ Fd rate is about 0.5%……… and completely forgetting about the *real rate of return adjusted for inflation*
Good….
_*Having gold or buying gold is not a crime, but, any other argument on this is absolute absurdity_*